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"( ) In making regulations under this section the Secretary of State shall have regard to the object of securing (so far as practicable) that the aggregate amount payable to him and all billing authorities by way of non-domestic rates as regards a relevant period is the same as the aggregate amount which would be so payable apart from the regulations.
(10A) For the purposes of subsection (10) above, the Secretary of State shall estimate the difference between—
(a) the aggregate amount which would apart from the regulations, all billing authorities by way of non-domestic rates as regards a relevant period, and
(b) the aggregate amount which will be payable having regard to rules prescribed under subsection (4) above,
and any shortfall in aggregate amount shall be recovered by applying a surcharge of the non-domestic rating multiplier for each relevant financial year."

On Question, amendment agreed to.

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Clause 77 [Power to change number of valuation bands]:

Lord Hanningfield moved Amendment No. 11:

    Page 43, line 7, at end insert ", provided that such change does not alter the ratio between the top and bottom band.

(4B) The power under subsection (4A) shall not be used to alter the ratio between the top and bottom bands set out in subsection (1).""

The noble Lord said: My Lords, the amendment would not restrict the Government's power to vary the number of council tax bands. It would simply retain the current ratio between the top and bottom bands. That would mean that householders in the top band would continue to pay three times as much council tax as those in the bottom band.

The purpose of the amendment is to provide householders with a degree of protection against steep rises in council tax, which is escalating to unprecedented levels. In 2003, council tax breached the 1,000 average. Even the Government have now recognised that council tax rises of the level that we have witnessed over the past three years are unsustainable.

In Committee, we debated at length the motivation behind the introduction of council tax. It was originally devised as part property tax and part tax on services. It was never designed to be based solely on the capital value of a property. That is why there is a structure of discounts based on the number and type of occupancy.

The discounts have nothing to do with the value of a property; they are based on an assumed reduced take-up of services. It is important that some consideration of service uptake is retained when planning any alterations to the tax system, so that we do not burden council tax payers with inflated charges based solely on property values. That is why the 3:1 ratio was originally introduced and why it is important that we make provision to ensure that it is retained. Let us also be clear that any threat to the existing 3:1 band ratio is a threat not necessarily to the wealthiest but often to those carrying the largest levels of mortgage debt or the lowest levels of disposable income.

On Report, the noble Lord, Lord Rooker, agreed that there is no direct correlation between the capital value of a property and the householder's income. Many properties with a high capital value might be owned by elderly retired people with low levels of disposable income, or by families with large mortgages and therefore relatively high levels of debt.

Property is a poor indicator of ability to pay. If variations in the number of bands mean a shift in the tax burden on to those householders occupying properties of higher capital value there will be problems—particularly with the elderly, who already find it very difficult to meet their council tax bills. Several groups of elderly people have got together to oppose council tax.

The amendment does not seek to inhibit the Government from shifting around the balance of council tax payments through the introduction of new

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bands. It simply seeks to put a cap on the Government's tax-raising powers. We believe that householders will appreciate that measure of protection. We do not believe that householders living in the same billing authority area will welcome the prospect of paying five times as much council tax as their neighbour because their house is five times more valuable. If that is what the Government have in mind, I think that there will be some very concerned people out there. I beg to move.

Baroness Hamwee: My Lords, we discussed the issue at various stages of the Bill. We do not support the amendment. As many know, we do not particularly support council tax. I do not see that it will help at all. My main concern as regards revaluation is to consider some of those at the bottom end of the scale, particularly those in park homes and so on, who have had tremendous problems. If the Government are trying to look at bands, I do not think that the amendment would be very helpful or that it would ameliorate any of the real problems that we have with council tax. I am afraid that we do not support it.

Lord Rooker: My Lords, having just heard the three key words "ability to pay" from the Tory spokesman, if I had a sense of humour I would wish that the noble Baroness, Lady Thatcher, had been here. "Ability to pay"—from the party that brought in poll tax. Come off it. I know that a decade is a long time in politics, but one must remember that council tax was introduced because of the absolute disaster of poll tax, where there was nothing like ability to pay. Now I am being lectured by the Conservative spokesman about ability to pay and local government finance. I am not taking that, for a start.

Having got that off my chest, I shall address the noble Lord's points. I accept that the amendment is narrow. There is not much new to say about the matter, but we must put it on the record. The amendment relates only to the Secretary of State exercising his powers to change the valuation ratio of 3:1 between the bottom and top bands. As I said previously, most people who pay council tax do not have a clue about the ratio between the top and bottom levels of council tax.

The amendment would mean that however council tax was fixed, the person with the biggest house in the area—at the highest band, well above the lowest band—would never pay more than three times the amount paid by the person in the house with the lowest value. There could be an argument about the issue; it has never been seriously debated. In response to the noble Lord, Lord Hanningfield, there are not too many cases of people in the top band and those in the lowest band living next to one another. I do not think that it is generally the case, so it is not a question of people paying five times more than their immediate neighbour.

When we discussed the issue on Report, I said that there was nothing new to say. I shall make the point in figures, which the noble Lord did not use. I fully accept what I said previously: occupancy of a property is not

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a sign of the ability to pay or of a person's income. I do not retract those points, which are valid. A person whose house is, say, at the bottom of band H, valued at 320,000, would pay three times the council tax of someone whose house was valued at the top of band A at 40,000. Much to my regret, in some ways, there are thousands of dwellings worth much less than 40,000, and much less than 20,000, in parts of this country. Where someone in a dwelling valued at 20,000 or 40,000 lives a few streets away from a house valued at 320,000—it need not necessarily be next door—the poll tax ratio would be only 3:1 but the property value ratio would be 8:1. It could be a lot higher than that.

I repeat on the record that we have no plans to change the ratio. If the amendment were agreed, we would not be able to change the ratio to reflect more closely the relative values of the bands. We would be stuck with the ratio established in 1992. On Report, the noble Lord, Lord Hanningfield, conceded, at column 983, that he was not fully wedded to the existing ratio of 3:1, which he now seeks to set in concrete. The noble Baroness, Lady Hanham, said, at the same column, that there needed to be a careful review of the number of bands and the ratio between them. It was a duet. By and large, the message was, "We are not fully wedded to the status quo". Noble Lords did not come up with an alternative, although the alternative offered today is highly restrictive.

On Report, noble Lords expressed concern about the owners of houses in band H. But we are also concerned, as we must be, about those in houses in the current band A that are worth very little—a lot less than 40,000. Even if no additional bands were created above the current band H, the amendment would prevent us creating an additional band below band H, for which the tax payable could be less than one third of the amount paid by those in band H.

Although, from the noble Lord's perspective, the amendment looks satisfactory, it would be highly restrictive if we wanted to propose going below the 40,000 level for the many thousands of people who, rightly, see their property as bearing no relation to the upper figure for band A.

I understand noble Lords' concerns about the exercise of powers, but constraining them in such a way is not a sensible way to proceed. Any change to the banding schemes, whether by re-valuing the bands, adding new bands or changing the ratios between bands, must be made by order, which is subject to the affirmative resolution procedure in the House of Commons. If the Government were minded to do that, it is not something that could be slipped through without a debate and a vote. That would be the right way and would provide proper parliamentary scrutiny.

I repeat, however, that we have not yet decided whether we will change the ratio. It does not make sense to limit our powers in this area, especially as we know that the existing ratio does not reflect the relative spread of values.

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Although it is churlish for Ministers to say this, I must put on record the fact that the amendment is technically defective, because the actual power to change the ratios is Section 5(4)(a) of the Local Government Finance Act 1992, not the new subsection (4A) inserted by Clause 77 of this Bill. That is a minor matter because if the will of the House were such that we should proceed, we could put that technical matter right. I make the point only in passing for the information of noble Lords. By the way, that is not an invitation to nip along and table a manuscript amendment.

No decision has been made to change the ratio, but the amendment would be highly restrictive as drafted because it would prevent us from introducing a band below 40,000. It is right for us to be concerned, as we all are, about property owners at all levels. I understand the Opposition's concern about people in big houses who may be on poor incomes. I fully accept that. Nobody would argue that people should move from their family house, which may be full of memories. There is no reason for that to happen if people can maintain the property. Nevertheless, people with low incomes present a real problem.

I fully accept that living in bigger, more expensive houses does not necessarily indicate an ability to pay. Nevertheless, I do not think that this is the way to go about changing the situation because it would stop us doing something for people living in really poorly valued properties. That is one area that we certainly want to examine, but no decisions have been made.

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